| Review of: | Federalism, Fiscal Authority, and Centralization in Latin America by Alberto Diaz-Cayeros |
|---|---|
| Reviewed By: | Caroline Beer |
| Reviewed in: | The Journal of Politics |
| Date accepted online: | 14/01/2008 |
| Published in print: | Volume 69, Issue 04, Pages 1210-1230 |
Book Reviews
The first empirical section provides a thorough and well-documented historical analysis of the efforts to construct fiscal centralization in Mexico, including statistical analyses of state voting behavior at the national tax conventions. During the 1920s and 1930s Mexico was characterized by regional fragmentation. But by mid-century the development of the Partido Revolucionario Institucional (PRI) as a hegemonic corporatist party generated national political integration. The PRI gained influence over local politicians through its control of the electoral process and local political careers. The development of the PRI allowed the central government to provide a credible commitment and therefore centralize revenue collection.
Chapter 4 uses spatial models to explain the selection process of governors. Diaz-Cayeros argues that a president's power to nominate governors is more constrained by local veto players than previous research has suggested. This chapter misses the opportunity to compare across the states and see how different veto players operate in different contexts. It seems likely that stronger opposition and more electoral competition would make local veto players more powerful because it would be harder to win elections in these contexts. The president would therefore be more dependent on local power brokers to ensure his candidate's victory. Thus, presidents should have less leverage to handpick candidates in more competitive states. Unfortunately the book does not examine this hypothesis.
Chapter 5 provides the best explanation of the Mexican fiscal federalism and revenue sharing currently available. Diaz-Cayeros does a fine job of presenting this very complex system in a clear and comprehensive way. He uses regression analysis to examine the distribution of resources to states. He finds that states with higher gross state product and a higher vote share for the PRI receive more federal public investment money (IPF).
The second half of the book compares Mexico's experience with fiscal centralization with Venezuela, Argentina, and Brazil. The process of fiscal centralization differed across countries based on "the resources available to the central government, the credibility of the threats made by the states, and the way in which promises by the federal government were enforced" (p. 148). The year 1929 was a critical juncture for these countries as the sudden drop in trade resulting from the worldwide economic crisis forced countries that relied on export taxes to find new sources of revenues. Many implemented the national income tax for the first time. In Venezuela, windfall oil profits, which were controlled by the federal government, allowed the federal government to distribute revenue with great discretion. Combined with a centralized system of party nominations, Venezuela remained very centralized. Argentina was marked by regime instability and the federal government was more redistributional. In Brazil, states rejected a centralized federal bargain, especially the powerful states of Minas Gerais, and San Paulo. The value added tax, the most important source of revenue, remained in the hand of the states.
The book's main conclusions are that federations are more likely to reach a revenue-sharing agreement when the federal government is more powerful than the local governments. Second, the level of resources distributed depends on the relative influence of local politicians. Third, democratic accountability improves compliance with revenue sharing agreements. Finally, the initial distribution of resources reflects the revenue generating potential of states. Powerful states with a large tax base will receive more taxes than smaller, poorer states. But over time there is more redistribution from rich states to poor states. There is also more redistribution if the revenue source is controlled by the federal government as in the case of oil.